Enhancing & Expanding Knowledge

IRDA AND ITS RELEVANCE IN LIGHT OF THE RECENT DEVELOPMENTS SEEN IN THE INDIAN INSURANCE SECTOR

The latest Amendment Act of Insurance Laws, 2015
sought to amend the Insurance Act, 1938, The General Insurance Business
(Nationalization) Act, 1972 and the Insurance Regulatory and Development
Authority Act, 1999. It was the first
major amendment in the Indian Insurance Laws since the enactment of the IRDA
Act, 1999.

The Insurance Laws Amendment bill which sought to
increase FDI from 26% to 49% among other reforms was first put forth by the UPA
in the year 2004, but could not be passed due to strong opposition. The
coalition government led by Congress in the year pushed for the amendment again
in 2008; however a committee on finance which was led by Yashwant Sinha shot
the bill down by recommending against the proposed reforms.

In the year 2012, the erstwhile UPA cabinet gave its
assent to the bill, and in 2014, the successor government led by BJP referred
the same to a committee headed by Chandan Mitra. In 2015, the Union Cabinet
gave its assent to the proposed amendments in light of the recommendations made
by the committee, and an ordinance was issued to this effect, as the parliament
was not in session. Later in 2015, the old bill (without the recommendations)
was withdrawn by the Rajya Sabha and the new bill was passed. [1]

IRDA is the controlling authority of insurances in
India. It carries out the various functions in the furtherance of the positive
duties obligated under the IRDA Act, 1999 and the Insurance Act, 1938. Thus,
the Amendment Act is bound to impact the IRDA. The enactment of 2015 establishes
authority as u/s 3 of the Amendment Act, by substituting section1 (A) of the
Insurance Act, 1938 as:

(1A) ”Authority” means the Insurance Regulatory and
Development Authority of India established under sub-section (1) of section 3
of the Insurance Regulatory and Development Authority Act, 1999.[2]

The Amendment Act has 165 separate mentions of the
word “authority”, which echoes the assertion made by the researchers that, the
enactment vastly discusses the relevance of IRDA in the insurance
industry.

Apart from the key amendments like increasing the
extent of foreign direct investment from 26% to 49%, the amendment brought
about the following key changes:

It mandated that the properties in India not to
be insured with foreign insurers except with the permission of Authority, (in
place of the central government) failing which a penalty upto 5 crore
rupees may be imposed.

The amendment provided that the Authority may
withhold the registration already made in favor of an insurance company if
it is satisfied that in the country in which such person has been debarred
by law or practice of that country to carry on insurance business.

The amendment provided for various instances
which could enable the authority to cancel the registration of an insurer
wholly or in part, which included insolvency, non-compliance of
regulations and laws under the Insurance Act.

The
amended Law has several provisions for levying higher penalties ranging
from up to Rs.1 Crore to Rs.25 Crore for various violations including
mis-selling and misrepresentation by agents / insurance companies.[3]

The amendment further provides for any insurer or
the insurance intermediary aggrieved by any order of the IRDA to prefer an
appeal to the Securities Appellate Tribunal (SAT).

Apart from these provisions, the amendment generally
empowers the IRDA, as it expands the powers of the regulator and makes its
exercise very flexible, and while doing the same; it increases the reach of the
insurance industry, which reflects in terms of increased insurance penetration.
Since the amendment in the year 2014, the insurance penetration (as % of GDP)
has increased from 3.3 to 3.44 in 2015, to 3.49 in 2016 and 3.69 in 2017.[4]

Since October, 2016 IRDA has mandated E-insurance
account to purchase insurances, the same is expected to decrease the cost by
15-20% for life insurance and 20-30% for non-life insurance.[5]

In April 2017, IRDA started a web portal isnp.irda.gov.in
that allows the insurers to sell and register policies online. This portal is
open to intermediaries in insurance business also; the same is expected to
boost the economics of the industry furthermore.

IRDA recently allowed life insurance companies that
have completed 10 years of operations to raise capital through Initial Public
Offerings (IPOs). Companies will be able to raise capital if they have embedded
value of twice the paid-up equity capital. Insurance sector companies in India
raised around Rs 434.3 billion (US$ 6.7 billion) through public issues in 2017
alone.[6]

The Central government notified the latest Insurance
Ombudsman Regulations in furtherance of the S.24 of the IRDA Act, 1999 and the Redressal
of Public Grievances Rules, 1998. The new rules strengthen the position of the
Insurance Ombudsman in the Indian Insurance Sector. The powers derived by the
ombudsman through the duties and functions enlisted for him under Rule 12 talk
about how he is to receive and consider complaints or disputes relating to the
delay in settlements of claims, repudiation of policies, disputes over premium
paid/payable, the legal construction of contracts of insurance etc.

Rule 12(2) provides that the ombudsman shall act as a
counsellor and mediator relating to the aforementioned contingent on the
consent of the parties. The Central Government or
as the case may be, the IRDAI may, at any time refer any complaint or dispute
relating to insurance matters specified.

Now, since the Insurance Ombudsman are entrusted with
such great extent (they can award compensation upto 30 Lakhs of Rupees)[7]
there must be an element of accountability on these officials, the onus to
ensure the same is on the IRDA.

The executive council of insurers is provided for by
the Rules, the same is entrusted to control and facilitate the office of the
Insurance Ombudsman. The council while is to help with the functioning of the
office of the ombudsman, it is also under a positive obligation to inquire into
allegations levelled against the ombudsman, provide the ombudsman to make a
representation and then forward the inquiry report and the representation of
the ombudsman to the IRDA.

The IRDA is under an obligation to decide upon the
action to be taken, if any against the insurance ombudsman, and even effect the
removal of the ombudsman. IRDA can further inquire suo moto in the
functioning of the Insurance Ombudsman and order the executive council of
insurers to initiate proceedings and then act.[8]

The IRDA is to be further submitted by the Insurance
ombudsman a statement of accounts and any other
relevant information and submit to the Executive Council of Insurers with a
copy to the IRDAI by the 30th June annually. Further the executive council is
also under an obligation to furnish a report with the general view of the
performance of the Insurance Ombudsman before IRDA post 30th June
and before 30th September annually. IRDA shall consider these reports and take steps as it deems necessary.

Further, an advisory committee of five eminent persons
(including one central government nominee) to review the performance of the
Insurance Ombudsman is to be constituted by the IRDA, which shall submit its
report to the IRDA.

The
Insurance Regulatory and Development Authority while is the controlling
authority of the insurance markets in India, while it has certainly done a lot
to regulate the insurance sector, the aspect of development has been
conveniently side-lined. The initiatives like the e-insurances and the
insurance ombudsmen have been excellently drafted, but not implemented that
greatly.

Further,
despite the various grants and sanctions from the union government for the
insurance sector, the insurance watchdog has very casually left the execution
to the various governments without much vigilance.

The
failure in speedy disposal of the various disputes before the authority has created
deterrent effect of sorts among investors in the markets. The lack of insurance
ombudsmen is further of urgent attention, as these officials are the sentinels
of the public.

IRDA
has however been a greatly successful regulator in the Indian market, the level
of transparency in the policy making and the availability of the insurance data
in the public domain has increased exponentially over recent times. The
digitalization initiative in itself has increased people’s access and has made
IRDA much more accountable.